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Yahoo's Q2: Mayer Has Her Work Cut Out for Her

Yahoo's Q2: Mayer Has Her Work Cut Out for Her

The flaccid second-quarter earnings Yahoo revealed Tuesday outline the mountain of challenges newly minted CEO Marissa Mayer must climb if she means to prove herself the turnaround artist the company's been searching for all these years. "Yahoo doesn't need an operational fix," said Global Equities Research's Trip Chowdhry. "They need to find and enter a new market, and they're not doing that."

By Rachelle Dragani E-Commerce Times ECT News Network
07/18/12 11:23 AM PT

Yahoo's Q2 earnings, which were publicly released Tuesday, underscore the challenges that new CEO Marissa Mayer will face as she takes over the struggling Internet company.

Yahoo brought in US$227 million in its second quarter, down from the $237 million it reported for the same time a year ago. Earnings per share were the same as last year at 18 cents.

The company noted that display ad revenue rose 1 percent from a year ago, admitting it could have been higher if not for poor performance in Europe. Yahoo's search partnership with Microsoft wasn't bringing the results it had hoped, with Yahoo unable to report on those exact numbers.

Yahoo did not offer guidance for its third quarter, noting that it was giving new CEO Mayer, who did not join other executives on the report's official conference call, a period of warm-up time before she will be expected to make projections.

Yahoo did not respond to our request for further details.

Moving Into New Markets

Yahoo has undergone a series of rapid-fire CEO rollovers in recent years. Last year, Carol Bartz was fired from the position via a phone call after serving for less than three years. Her replacement, Scott Thompson, left earlier this year after it was revealed he falsely claimed to have earned a computer science degree.

Once an innovator in the Internet landscape, Yahoo has faced growing competition from rivals like Google and Facebook, which dominate the search and social scenes on the Web. Since Yahoo has struggled to compete in those new spaces, the results show that the company's challenges are larger than just the management crisis it's faced over the past year, said Trip Chowdhry, senior analyst for Global Equities Research.

"Yahoo doesn't need an operational fix," Chowdhry told the E-Commerce Times. "The alliance with Microsoft is a total disaster, the display ads are not what they want them to be, but it's still not a product problem that Yahoo has. They need to find and enter a new market, and they're not doing that."

The company also faces risk within its core business and the uncertainty that looms over bringing on a new CEO, said Brian Wieser, analyst at Pivotal Research Group.

"But the downside to the stock's value is limited at its current level, which places almost no value on the core business, so even radical efforts to drive significant upside should be disproportionately valuable to Yahoo," he told the E-Commerce Times.

Still, he said, he expects that Yahoo's display ad partners will continue to team up despite the management overhaul.

"The core portal and related advertising business has turned out to be remarkably resilient given the extent of upper management turmoil and middle management disgruntlement in recent years," he told the E-Commerce Times.

The Right Person for the Job?

Still, leadership will be critical going forward if Yahoo wants to regain its place as an Internet leader, said Chowdhry.

"The company has more than five times the employees of Facebook, but they don't have that entrepreneurial spirit, because the management has been clueless and no one is providing that entrepreneurial leadership," he said.

However, Chowdhry questioned whether Mayer was the right person to guide the company into the evolving Internet markets. The newly hired CEO was plucked from a 13-year career at Google. She will take over from interim CEO Ross Levinsohn.

"Marissa Mayer is a professional CEO and administrator, but what are those skill sets going to do with what Yahoo needs to get going?" he asked. "Yahoo needs to enter and define new markets, and that is not her background. She is highly skilled in user interaction and maybe products, but Yahoo's problems are not in those markets. Yahoo's problem is with the new markets that are constantly emerging, and how to get into those. I'm not sure Mayer can do that."


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